The Option Alpha Podcast

Show notes: http://optionalpha.com/show84For years we’ve talked about the need for increasing your trading frequency. In today’s podcast, we want to re-introduce the concept of stacking or laddering option trades over time and price. More importantly, we’ll talk about why our extensive backtesting (and current experience) proves that when you break down your trade entry into smaller and smaller chunks, the overall performance of the trading system increases dramatically.

Show notes: http://optionalpha.com/show83A casino's edge ranges from 0.5% for blackjack to as high as 17% for some slot machine games. Now, of course, this edge may or may not play out on the first, second, or tenth roll of the dice. But they are not in it for the short-term game. You see, the casino doesn't have to beat every player every time. They just know that they'll win their mathematical edge so long as enough bets are placed each year. It's precisely why casinos offer huge incentives to get you to come back with free show tickets, free meals or even free hotel rooms. It's why the force table limits on how much you can bet on each hand and why they give you free drinks for playing. While you might think it's just them being nice, it's not. It's an investment they know pays huge dividends. In fact, on average casinos spend up to $45 each hour to keep you sitting in your seat and betting money. Now, I frankly don't care if you like or hate casinos because the reality is that it's an insanely profitable business model based on simple math and expected outcomes. As options traders, we can learn a lot about how we should run our own trading business from casinos. In today's show, I want to walk through some of the most important takeaways that you can apply right now to your trading system and invite you to open your mind and try to see the big picture strategy.

Show notes: http://optionalpha.com/show82We can't control the stock market - yet many of you try to will or hope stocks to move up or down as needed for your position to make money. Eventually, you'll come to realize that it's an impossible dream and the harsh reality of transiting from novice to professional investor requires a more consistent and systematic approach. The question then becomes, "What can I control?" and "How can I adjust or hedge a position that moves against me?"In today's show, we'll look at one of our recent bear call credit spread trades in which we still lost money, but was able to cut the loss by 37% making some simple trade adjustments. Yes, you heard me right, we're going to do yet another case study on the lessons learned from an options trade that overall, net-net lost money. Unlike many other traders who are afraid to show you losing trades, I'm completely open to them because I know it offers an excellent opportunity to learn and grow from my experience.

Show notes: http://optionalpha.com/show81Fundamental investors are like the wooly mammoth; big, strong, powerful, yet destined to become extinct in the future. And while there is absolutely nothing wrong with the core beliefs and activities of fundamental investors, I just personally believe that the same passion and hard work could be applied to the options market with much better results and less risk. Besides, even Warren Buffett, the biggest advocate for fundamental investing and long-term investment strategy is by many standards the single largest options seller in the market today.Nobody asks him about his $5 billion dollar short option trades, do they? Not yet anyway since we'd love to have him on the podcast.In today's latest show, I want to present the case as to why I believe that more "old school" fundamental investors should become professional options traders instead. In fact, you'll see that there are many similarities between options trading and a long-term, buy and hold stock investor. Plus, I'll quickly rant about the "Netflix Effect" and how technology and social media is rapidly changing the landscape for all businesses in the future.

Show notes: http://optionalpha.com/show80Your option strategy payoff diagram is an ever evolving and changing animal. Unlike stocks which have one-dimensional payoff graphs, either upward or downward sloping, and theoretically unlimited holding periods, option strategies are impacted by cubic pricing events. Namely, time decay (Theta), implied volatility (Vega) and interest rates (Rho) which can cause your payoff diagram to shift, mold, and bend as these additional pricing elements change with the market. In today's podcast, I want to help you understand how these three Option Greeks could have a significant impact on the way your payoff diagram looks now vs. at options expiration. In the end, I think it'll help give you more confidence and patience if you understand how option pricing works when holding positions that initially move against you but ultimately will turn out to be profitable.

Show notes: http://optionalpha.com/show79Today's podcast is all about learning how to trade calendar spreads. And while newbie traders might find them a little difficult to understand conceptually at first, I think you'll find our talk today to be incredibly helpful as we break down these time spreads from start to finish. During the show, I'll walk through setting up and building calendar spreads, the impact of implied volatility and time decay, how to adjust and exit as well as the best market setups for these low IV option strategies.

Show notes: http://optionalpha.com/show78I know one of the key elements to successful options trading long-term is maintaining an investment portfolio that is consistently balanced. And when I talk about balance, I'm not talking about 80% stocks and 20% bonds - that's portfolio diversification. Unlike traditional investment strategies that favor 99% of the portfolio invested in long equities and bonds with minimal short exposure, what I'm specifically referring to here is the concept of trading a mix of bullish, bearish and neutral positions all the time which gives us a much smoother and solid equity curve.One of the best ways to measure overall portfolio balance is to beta-weight the portfolio to a benchmark index like the S&P 500 (SPX or SPY). This metric gives us an apples to apples look at how the portfolio as a whole would perform when the market moves higher or lower. And once you start monitoring the beta-weighted portfolio you'll notice that sometimes your positions can become unbalanced and lopsided. In today's podcast, we'll give you four option strategies or techniques we use to help re-balance a portfolio that's gone out of wack. Of course, having a completely delta neutral portfolio is always the goal, but never the destination, and our talk about maintaining balance and neutrality should help as you continue adding and adjusting your option trades this year.

Show notes: http://optionalpha.com/show77Options expiration week can be a scary time for some traders as they struggle with fears about short option contract assignment. And while the reality is that most options are not assigned, it still creates anxiety and confusion about what to do with short positions that are in-the-money. On today's podcast, I'll walk through the most recent OCC stats on options expiration including the #1 reason why you shouldn't be afraid to hold positions that go in-the-money even during expiration week.

Show notes: http://optionalpha.com/show76Our #1 core value here at Option Alpha is that options trading education comes first before anything else. I believe that you have to crawl before you can walk in this business and it's why all of our trading courses, guides, and checklists, podcasts, webinars, etc. are completely open and free. Still, I understand that options trading can be overwhelming and confusing at times with so much to review and consume. Recently, I found myself in the same situation with a development project for the website, and I thought that it would be a great discussion for the podcast and potentially help you in your options education journey.About a month ago I was hitting a brick wall in rolling out some improvements and changes to the Option Alpha platform. There was so much to do, and I didn't know where to start first. We needed to update SEO stuff, website navigation menus, page layouts, servers, etc. Needless to say, I was overwhelmed with the workload and assumed it would take months to finish. On the recommendation of one of my coaches (yes I have coaches too!) I implemented a couple of deadline and phase strategies that I cover in the show.The result is that my team and I finished all of our updates and enhancements much faster than I expected and are off to the next project for you all. And as simple as these strategies might sound during the show, I promise you that they made the world of difference for me in quickly educating myself and organizing my time and activities and I know it'll help you if you take action today.

Show notes: http://optionalpha.com/show75I've been trading publicly on Option Alpha for more than eight years now, and I'm still baffled by the number of investors who get absolutely shocked when option trading portfolio drawdowns occur. I'm talking ALL CAPS emails, mind blown, ripping their hair out shocked that a trading system wasn't a 100% probability of success. And while losing money is by no means "fun" or "exciting," it is, however, part of high probability trading systems.In fact, you are guaranteed at some point to have a drawdown or streak of losing trades. It shouldn't come as a surprise, and it's why we are so big on balancing portfolios and trading small positions to minimize the impact on your account. Even though we know we'll have portfolio drawdowns from time to time, we also know that we'll end up generating above average returns if we stick with it long enough. The concept of trading in a positive expected outcome system and being persistent through drawdowns isn't based on my opinion or assumptions; it's backed by math and the 44,801 backtested option strategies I'm going to cover in today's show.Many of you know that over the last year we've been building and developing options backtesting and optimizing software that is going to be a complete game changer for traders just like you. In this show, you'll finally start to see just a small glimpse of the power behind backtesting and modeling hundreds of thousands of option strategies. It was by far one of the most anticipated shows for me to record and I hope you find incredible value in listening.